CB -
The intended purpose of my story was to try to demonstrate that an increased level of economic activity does not necessarily imply a requirement for an increased supply of money.
Be that as it may, I've come across a section of Rothbard, Man, Economy and State, Vol. II, C. SECULAR INFLUENCES ON THE DEMAND FOR MONEY, pg. 675-676, which appears to be extraordinarily clarifying. I'll quote at length, not finding an online text source.
" Long-run influences on the demand for money in a progressing economy will tend to be manifold, and in both directions. On the one hand, an advancing economy provides ever more occasions for new exchanges as more and more commodities are offered on the market and as the number of stages of production increases. These greater opportunities tend greatly to increase the demand-for-money schedule. If an economy deteriorates, fewer opportunities for exchange exist, and the demand for money from this source will fall.
The major long-run factor counteracting this tendency and tending toward a fall in the demand for money is the growth of the clearing system. Clearing is a device by which money is economized and performs the function of a medium of exchange without being physically present in the exchange.
... Thus when a clearing is made, and only the net amount of money is actually transferred, all parties can engage in the same transactions at the same prices, but using far less cash. Their demand for cash tends to fall.
There is obviously little scope for clearing, however, as long as all transactions are cash transactions. For then people have to exchange one another's goods at the same time. But the scope for clearing is vastly increased when credit transactions come into play. These credits may be quite short-term. ... At the end of the period, the debts are cancelled and cleared, and the net debtor pays one lump sum to the net creditor. ...
Clearing, then, is a process of reciprocal cancellations of money debts. It permits a huge quantity of monetary exchanges without actual possession and transfer of money, thereby greatly reducing the demand for money. Clearing, however, cannot be all-encompassing, for there must be some physical money which could be used to settle the transaction, and there must be physical money to settle when there is no 100% cancellation (which rarely occurs)."
Regards, Don |
